Month: December 2021

Why is US Inflation at a 40-year high?

Markets spent most of last week awaiting the latest US inflation figures with bated breath. Turns out that in November, US consumer prices rose by 6.8% year-on-year. That’s the highest level seen in nearly 40 years.

If you’d been told this time last year that inflation would hit a near-40-year high in the US (and in lots of other places) by the end of 2021, you might imagine a number of scenarios.

So I still think that the market is underestimating the odds of a much more inflationary outcome here. What do you do? Same as we’ve been suggesting for a while: buy cheap stuff, hold gold, make sure there’s cash to hand for capitalising on opportunities as and when they arise.

You might imagine that the US Federal Reserve and other global central banks would have stopped printing money. You might imagine that the more overvalued markets might have crashed. You might imagine that bond yields would have risen significantly. The market reaction reads more to me as though investors are still hoping for a Goldilocks-style outcome. You’ll get a slow but steady shift higher in interest rates. The cycle will peak earlier than before but so will inflation – particularly if supply chains start to clear. And so it’s worth reining in bets on the more loopy stuff, but no point in betting on spiking yields or collapsing stock markets.

Money Morning

Is there a House price bubble coming?

House prices in the UK were up by 8.2% year-on-year in November. And up 3.4% on the quarter (the fastest such growth since 2006).

Housing bubbles cripple an economy when they burst. And unlike every other investment bubble, they leave no legacy of cheap infrastructure on which to build a future boom. 

They just leave indebted, possibly homeless individuals; bankrupt housebuilders; and a devastated financial system which then wreaks havoc on every other sector. 

But it’s not just the eventual bust that’s a problem. The boom is rubbish too. A lack of cheap housing makes it harder for people to move for work. It makes it harder to start a family. And it adds to the feeling that we live in an unfair society.

What is driving this near-global boom is low interest rates and cheap credit. And  the thing to remember about the housing market is that it lags behind moves in the Bank of England rate (assuming that even moves). 

If you’re buying or remortgaging, just make sure you can afford it and lock in the longest cheapest fix that makes sense for you (within reason). Beyond that, don’t put all your eggs in one basket.

Money Week

Increased costs in 2022

How much do you spend each week on household costs? And what does that equate to on an annual basis? According to a forecast, those figures will be rising next year. It’ll be about £1,700 more per year – that’s just over £30 more per week for a typical family of two adults and two children. Analysis from the Centre for Economics and Business Research projected the inflation rate would rise to 4.6% by Christmas mainly due to higher fuel and energy prices, but analysts say the full impact of this hasn’t been passed on to customers by supermarkets.

BBC News